Question

Tolo Co. plans the following​ repurchases: $9.7 million in one​ year, nothing in two​ years, and $19.9 million in three years. After​ that, it will stop repurchasing and will issue dividends totaling $25.6 million in four years. The total paid in dividends is expected to increase by 2.9% per year thereafter. If Tolo has 1.9 million shares outstanding and an equity cost of capital of 11.4%​, what is its price per share​ today?

Answer 1

Payout in the first four years has been provided:-

Repurchases in 1 year(D1) = $9.7 million

Repurchases in 2 year(D2) = $9.7 million

Repurchases in 3 year(D3) = $19.9 million

Dividend in year 4(D4) = $25.6 million

Therafter Dividend will grow(g) = 2.9% per year forever

Equity Cost of Capital(ke) = 11.4%

Calculating Current Value of Equity($ in millions):-

Value of Equity = $248.77 million

Value per share = Value of Equity/No of shares outstanding

Value per share = $248.77 million/1.9 million

Value per share = $130.93

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